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Contracts and Cupcakes

Well, nothing really. But CUPCAKE defines the elements of a well-written contract. It should be:

Clear,

Understandable,

Precise,

Comprehensive,

Authoritative,

Keepable, and

Enforceable.

To be more specific:

Clear means that, for each sentence and each section of the contract, what you think it means, what the other party thinks it means, and what a stranger like a judge would think it means, are all the same. That’s not always easy to do, but it’s worth the effort. In fact, in the process of developing clear contract language you may find out that you and the other party had different understandings of an important point. You’re usually better off discovering that before negotiations are over, so you can come to a real agreement, instead of later when it can lead to a fight.

Understandable means that the contract as a whole makes sense, and the different responsibilities of the parties relate logically to one another. If the document is organized coherently, it’s much easier to see if any important points are missing. (See Comprehensive.) And if it’s ever necessary for you (or someone else) to go back to the contract, you’ll be grateful that it was put together in an understandable way.

Precise means that the details are specified as exactly as possible. This is especially important for things like product specifications, delivery dates, and payment terms. But it also applies to other parts of a typical contract, like when and how the contract can be terminated, or what intellectual property rights each party will have.

Comprehensive means that the contract contains everything about the arrangement that needs to be agreed on. It’s fine to have some of the details in exhibits attached to the contract, or even in separate documents, but they need to be referred to and ideally incorporated into the contract.

Authoritative means that the people signing the contract have the authority to make a binding agreement on behalf of the party they represent. This is particularly important when you’re working with organizations, especially big ones. In some companies a department manager or a sales representative can sign on behalf of the organization, and in others a more senior person has to sign. Although you may still be able to hold the other party to a contract signed by someone who lacked proper authority (under the principal of apparent agency), at best it’s a headache—and at worst, you don’t have the contract you thought you had.

Keepable (awkward, I know, but it’s not so easy to find a good K word) means that no one is making unrealistic promises, or agreeing to take on responsibilities that they aren’t capable of meeting. “I guarantee that the weather will be good for the event” isn’t keepable in most places (although it is in some). Most people wouldn’t make that promise, but many engineers will tell you that their company’s sales reps make unrealistic promises about product capability all the time (see the Dilbert comic strip for examples). You shouldn’t make promises that you can’t keep (that’s obvious), but you generally shouldn’t accept promises from the other party that you recognize they won’t be able to keep either. Do so usually leads to a mess.

Enforceable means that the contract doesn’t call for someone to do something that courts won’t enforce. Many penalty clauses are examples of this: “if you don’t meet all the specifications you have to pay me $10,000” is probably not enforceable if the amount has nothing to do with the damages the client will suffer.

Drafting contracts that meet these standards isn’t something only lawyers can do—business people who are skilled in writing and sharp at reading can do it too—but many lawyers (including yours truly) are quite good at it. Using an experienced lawyer to improve your contracts may not taste as good as a cupcake, but it can be good for you–and it’s not fattening!